Property | International

Repossessed homes set for US rental market

Bidders must agree to rent out the foreclosed properties to their occupants rather than immediately selling them

Financial Times

Published: 00:00 March 2, 2012

Washington/New York Investors will be able to bid for nearly 2,500 repossessed US properties owned by government-controlled mortgage giant Fannie Mae in a pilot programme tailored by the Obama administration to avoid further depressing the housing market.

The housing financier is seeking through the initiative, detailed on Monday by the Federal Housing Finance Agency, Fannie Mae's regulator, to sell a portion of the roughly 120,000 foreclosed properties it holds on its books to investors. Buyers must agree to rent out the properties to their occupants rather than immediately selling them on the open market. By delaying the open market sale of distressed homes, officials hope housing prices will rebound more quickly.

The 2,490 properties, scattered among eight areas battered by home seizures across six states, include a mixture of single-family homes and apartment units. They are valued at a combined $321 million (Dh1.1 billion), according to documents sent to potential investors.

The government is asking investors to submit bids to either buy the properties outright or to enter into partnerships with Fannie Mae, which would retain equity in the properties while investors and the mortgage giant receive monthly rents.

The pilot programme is the first of a series of initiatives expected to be launched by FHFA. The next one will probably come in the spring, officials said.

Though Fannie Mae sells roughly three of every five homes it repossesses to buyers who plan to live in them, analysts have argued that a targeted programme that converts foreclosed properties owned by Fannie Mae and Freddie Mac, its corporate cousin, to rentals would have an outsized effect on the overall US housing market.

Powerful policy tool

Last month, the Federal Reserve suggested that policymakers develop such a programme.

"It's the single-most powerful policy tool the federal government has at its disposal to solve the problem of housing," said Steven Abrahams of Deutsche Bank last month. "It's a potential game-changer."

Abrahams said such an initiative would have two positive impacts: tumbling property prices would stabilise as fewer distressed homes either languished as vacant properties or flooded the sales market and rising rents also would be stabilised as more dwellings would be available for lease.

Michael Stegman, housing counsellor to Tim Geithner, US Treasury secretary, said: "We believe that this initiative holds promise for providing support to local neighbourhoods that were especially hard hit by the housing crisis and will help meet the rising demand for rental housing in many communities."

Officials cautioned that the pilot initiative and similar ones that follow would not amount to a nationwide programme that seeks to convert seized homes into rental properties.

Still, several large US institutional investors have already expressed interest in such programmes. With financing from the government, these deals could carry high projected returns at a time when the benchmark US interest rate is expected to remain near zero.

"This is a very attractive alternative investment opportunity," Vincent Fiorillo of DoubleLine Capital said last month. "I promise you there will be investors knocking at their door for this programme."

Pre-qualified investors who first post $250,000 security deposits will be able to view detailed information on the specific properties.

Winning bidders will have to agree to rent the purchased properties for a few years before selling them. The bidding process will take a couple months, and the sales will close by the end of May, documents show.